This article originally appeared at elEconomista.es, an online Spanish business news website. Click here for the original version of this article, in Spanish.Kenneth Rogoff’s partner-in-crime in the book This Time is Different, Carmen Reinhart, has no doubt that the Portugal situation will wind up like situation in Greece and Ireland. During a recent interview, Reinhart, a fellow at the Peterson Institute for International Economics, said that Greece, Ireland, and Portugal would not be able to avoid the restructuring of their debt.
“I do think that the IMF, like the EU, continuing to hammer that restructuring is not needed is ill-placed, completely ill placed,” Reinhart said. “The idea that we can solve the massive debt overhang that Ireland, Greece, and Portugal have exclusively with adjustments is one that I don’t subscribe to,” she added.
As Reinhart explained, the efforts to delay Greece’s debt restructuring have been expansive and expensive, but the situation of growth absence keeps getting worse because inflation is not an option. Under these circumstances, “it’s very reasonable to expect a Greek restructuring” in the course of the next year, she said,
However, she added that the situation would not resemble a “chaotic Argentine scenario with Greece leaving the euro and a unilateral default.”
Regarding a possible contagion to Spain, she said that when economies are as integrated as they are in Europe, “you can never ruled out contagion.” But for now, the big contagion episodes involve surprises, and that element is lacking in the current situation, Reinhart said.
She added that Spain and Italy have, in some way, decoupled from what is happening in Portugal.
Regarding the stress tests to be conducted in the Eurozone by the ECB, Reinhart assured that things would have to be “drastically worse” than expected for Spanish banks to get an adverse market reaction, because that would mean that the fiscal transfer would have to be that much greater.